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September 2005

Supreme Court vs Lord of the Rings

Employee or Independent Contractor?

The Supreme Court, which replaced the Privy Council as New Zealand’s Court of final appeal, recently issued its first decision in an employment case.

Background Facts

Three Foot Six Limited (“TFS”), was the production company formed to produce the Lord of the Rings trilogy. Mr Bryson had worked for Weta Workshop Limited, a company associated with the project, as an independent contractor making miniatures for the films. In April 2000, he was seconded to TFS to work in its miniatures unit. Initially, this was for a two week period during which his contractual relationship remained with Weta Workshop Limited. He was then invited to continue working for the TFS miniatures unit. Mr Bryson accepted this offer. However, no formal contract in writing was entered into until October 2000 when Mr Bryson signed a “Crew Deal Memo”. This document provided that Mr Bryson was a contractor, not an employee. The method of payment of tax and ACC arrangements were consistent with that status. However, other aspects of the document could equally have appeared in an employment agreement. 
In August 2001, TFS announced that the miniatures unit was going to be down-sized and Mr Bryson’s work came to an end. Mr Bryson claimed that this was an unjustifiable dismissal and sought to bring a personal grievance claim.

The Issues

Under the Employment Relations Act 2000 (“the Act”) only those who are employees can bring a personal grievance claim. TFS took the position that Mr Bryson was an independent contractor, not an employee and therefore not entitled to bring a personal grievance claim. Whether or not Mr Bryson could bring a personal grievance at all depended on the outcome of this issue. Therefore, the case proceeded on the basis that this issue would be determined first.

Lower Court Hearings

The issue was initially determined by the Employment Relations Authority, who took the view that Mr Bryson was a contractor and therefore unable to bring a claim. Mr Bryson elected to have the determination re-heard by the Employment Court. The Employment Court took a different view and determined that Mr Bryson was in fact an employee. 
The Court of Appeal, which can only hear appeals from the Employment Court that are brought on the grounds that the Employment Court misapplied the law (as opposed to making incorrect conclusions as to the facts of the case), took the view that the issue of whether Mr Bryson was an independent contractor or employee was one of law and agreed to hear the appeal. Subsequently, a majority of the Court of Appeal allowed the appeal and held that Mr Bryson was an independent contractor.

The Appeal to the Supreme Court

Mr Bryson then appealed to the Supreme Court, which unanimously allowed the appeal and restored the decision of the Employment Court that Mr Bryson was an employee, not an independent contractor. The reasoning of the Supreme Court was essentially that the issue of whether or not Mr Bryson was an employee or contractor was ultimately one of fact, rather than one of law, and that the Employment Court had not been shown to have committed any error of law in reaching its decision. Therefore, the Court of Appeal had been wrong to substitute its view for that of the Employment Court.

The Supreme Court observed that the Act provides that in determining whether or not a person is an employee, the Employment Relations Authority must determine the real nature of the relationship between the parties. In doing so, it must consider all relevant matters, including any matters that might indicate the intention of the parties. The Supreme Court reinforced the proposition that whilst the written and oral terms of the contract between the parties would be a relevant matter to be taken into account, they will not necessarily determine the matter. Other matters, such as the way in which the relationship has operated in practice, will be crucial to determining the real nature of the relationship.

The Significance of the Decision

As mentioned above, the Supreme Court effectively disposed of the appeal on the basis of the issue of whether or not Mr Bryson was an employee or an independent contractor was a question of fact, not one of law, and therefore the Court of Appeal should not have overturned the Employment Court decision. However, the decision emphasises that in determining whether or not someone is an employee or an independent contractor, all relevant matters must be taken into account. The way in which the arrangement works between in practice will be of critical importance. 
The issue of whether or not someone is an employee or an independent contractor can have wide-ranging consequences. For example, entitlements to sick leave, annual leave, public holidays etc are only available to those who are employees. Furthermore, as is demonstrated by the Bryson case, only employees can bring a personal grievance claim under the Act. It is important that both the contractual documentation and the way in which the parties operate in practice reflect the intended nature of the relationship.

We can assist in preparing and reviewing your employment/ contractor agreements.